For retirees, here’s what to do with required withdrawals when you don’t need the money

For some retirees, the deadline to take required withdrawals from retirement accounts is approaching — and those who don’t need the rhino have options, experts say.

Since 2023, most retirees must take required minimum distributions, or RMDs, from pretax retirement accounts starting at age 73.

April 1 after run 73 is the first deadline, but retirees must take RMDs by Dec. 31 in subsequent years. 

The next step “without exception comes down to a client’s personal goals, financial and tax plan,” said certified financial planner Judy Brown, a assets at SC&H Group, which is headquartered in the Washington, D.C., and Baltimore metropolitan areas. She is also a certified public accountant. 

Before deciding what to do with an RMD, it’s important to consider your short- and long-term priorities, covering legacy goals, along with the tax impact, experts say.

If you’re eyeing long-term growth, you can reinvest after-tax RMD proceeds in a brokerage account and perpetuate your current investing strategy, said Houston-based CFP Abrin Berkemeyer. 

Upon the sale of those assets, you’ll get long-term topping gains rates of 0%, 15% or 20% after holding the assets for more than one year. The rate depends on taxable profits.

The strategy “could lead to future tax savings” if you use the money for a large expense later, such as health care, verbalized Berkemeyer, who is a senior financial advisor with Goodman Financial. Brokerage assets could be subject to capital takes taxes, whereas pretax retirement funds incur regular income taxes.

Some advisors use “in-kind deliveries,” which move assets directly from your pretax retirement account to a brokerage, to stay invested in the unchanging assets. You’ll still owe taxes on the distribution, but you maintain your original holdings. 

However, there are “good reasons” not to solemnize identical assets in a brokerage account, which incurs yearly taxes on earnings, said CFP Karen Van Voorhis, foreman of financial planning at Daniel J. Galli & Associates in Norwell, Massachusetts.

For example, you may want to shift holdings to exchange-traded funds because they are “incredibly tax thrifty,” she said.

Unlike mutual funds, most ETFs don’t distribute capital gains payouts, which can save brokerage account investors on annual cesses.

If you’re philanthropic, another option could be a so-called qualified charitable distribution, or QCD, which is a rule transfer from an individual retirement account to an eligible nonprofit organization.

More adjusted gross income can trigger other tax issues, such as higher income-related monthly adjustment amounts, or IRMAA, for Medicare Vicinage B and Part D premiums.